Healthcare companies were over 80% of venture-backed IPO activity in Q3'14. But while exit activity remained plentiful, healthcare VC funding and deals dropped 38% and 22% on a sequential basis.

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Healthcare companies took over 80% of venture-backed IPO activity in Q3’14. Despite life science IPO activity remaining strong, VC funding and deals dropped 38% and 22% on a sequential basis in Q3. While 2014 should see healthcare funding above where it was a year ago, the dichotomy between funding and exit activity remains significant.

This brief takes a look at investment trends including the top states, industries and stages observed across the U.S. healthcare VC ecosystem (medical devices, pharma, biotech) in Q3’14. For more VC financing and exit data across all sectors and U.S. tech hubs, see the full Q3 2014 Venture Capital Activity and Exits Report.

Early-stage healthcare VC deal share gains ground

Early-stage healthcare deal activity (Seed/Series A) gained share in Q3 and took 41% of the total # of deals in the sector, after falling to a cumulative 33% in Q2. Mid-stage deal share at the Series B stage fell to 25% over the three month period, after taking 29-30% in each of the previous two quarters.

On the funding front, however, healthcare VC dollars remained strong at the mid-stage as Series B funding share remained near Q2’s five quarter high at 33%. Late-stage deal share fell to a combined 27% after taking 39% in Q2.

Medical devices, biotech take 65% of healthcare deals in Q3

Q3’14 saw medical devices take 37% of all healthcare VC deals in 2013 – another strong quarter for the industry after taking 36% of deals in Q2. The top 3 industries by deal share were rounded out by biotech and drug development, which notched 28% and 14% of all healthcare VC deals in the three months.

California dominates Massachusetts in healthcare VC deals

California took 41% of all healthcare VC deals in Q3, more than 3x the amount of the next largest healthcare VC hub, Massachusetts which took 11% of deals. Other states that took 4%+ of healthcare VC deals in Q3 include Texas, Tennessee, Pennsylvania and Ohio. At the city level, both Redwood City and San Diego topped Massachusetts healthcare hub Cambridge in terms of number of deals in Q3’14.

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